3 years ago, VCs in Bay Area tech were thriving. Now, they're 'bleeding cash.'
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Not sure when it happened but the tech world seems to be chasing its own tail. Maybe it's simply because the tech isn't so interesting these days. The release of the iPhone and Android was a cambrian explosion in possibility: the likes of Uber simply can't happen without a GPS enabled smartphone. But that's all old news now, so VCs are leaping on absolutely every tech advancement as the next big thing and then stumbling when it isn't.
Also, to your comment "tech isn't so interesting these days"... we get a new cambrian idea or core technology every 5-10 years, and obviously AI/ML is the current one since Nov 2022.
Seems like a backwards way of looking at it. There is _always_ a cambrian explosion every 5-10 years therefore AI is that explosion? Seems like you're asking for false positives. What if we _don't_ have one every 5-10 years?
No I'm not? OP said:
> we get a new cambrian idea or core technology every 5-10 years
I'm not the one conflating anything here.
Exactly. Just as we also see the sun rise each morning.
That, however, does not imply one predicts that the sun will forever rise each morning. In fact, we know that at some point the sun will no longer rise in the morning. But we see the sun rise each morning, and we see a new cambrian idea or core technology every 5-10 years.
> I'm not the one conflating anything here.
That's fair. Conflation implies intent. Whereas you are just confused.
And you are being patronising.
My point is that there’s no guarantee this tech explosion will continue. Your logic appears to be “it has, so it will, until it doesn’t”, which… okay? All of your comments so far feel like you’re disagreeing with me just because you feel like being argumentative rather than because you have something useful to say.
> Conflation is the merging of two or more sets of information, texts, ideas, or opinions into one, often in error.
It can be done as a rhetorical ploy, but that's not part of the definition, it can also simply be a mistake.
ChatBots are super cool and useful but they are not the AI being sold.
Then the observed trend will come to an end. Seems rather obvious, no?
But Hollywood does. Lots of producer/PA/VFX work is being rapidly automated and the genie is not going back inside the bottle.
"The internet is a thing? Okay, now _everything_ is the internet."
They lean hard into new technologies. That's the nature of VC. Sometimes they're right and sometimes they're wrong.
Compare that to one of this year's YC batches, which IMO sounds much more sci-fi and interesting: https://www.ycombinator.com/companies?batch=W24
It seems like it's popular today to try to adopt a very salty and jaded attitude about everything with the idea that it's "calling BS" or bringing some kind of subversive viewpoint. In fact, nothing is more common, and it brings very little to the discussion.
You're right that it's common, but I don't think it's unwarranted. Over the last ~15 years, we've seen "amazing tech of the future" either work but have awful downstream effects (mainly social and economic), or flat-out not live up to the hype: social media, VR, NFTs, streaming media, the gig economic, etc.
It's healthy to tamp down hype and demand good thoughtful technological development, instead of just YOLOing into moving fast and breaking things.
I think 2014- was probably when things got more dynamic. Mobile was starting to mature, it was right before the crypto pump, iot was developing, and there were some big buy outs with whatsapp, oculus and viber.
Also, I’d say that was around the time the everything store of Amazon started gaining mainstream adoption.
Also keep in mind there is always a percentage of startups that exist only to be acquired by Microsoft/Oracle/Cisco and be shunted or thrown away/migrated to their products.
The Bay Area in general is anemic in general for financing. It has not and likely will not recover from the pandemic anytime soon. There has been hemorrhaging of companies and jobs. Oakland has a $90 million+ deficit this year and will likely need to cut the only thing they can, police and fire department employees. BART rider trips are only 43% from what they were in 2019. Leadership failure 101. Oakland mayor recalled. Alameda DA recalled. San Francisco mayor voted out. People hate bipping.
Markets where everybody expects growth and where investors have easy access to money are hot markets for VC's and that's the market we were still in the tail end of 3 years ago. Later investors are optimistic about real business prospects and they have capital they want to leverage so VC's have a ton of wealthy buyers to court with their exciting products.
But that's not the market we're in right now, so the VC model doesn't thrive nearly as well. And the stark transition can indeed cause a bleed as old bets turn wrong and start to really hurt.
This kind of story can be a helpful reminder as to how venture capital works and the kinds of markets it works well or poorly in, but it's not a big surprise and every experienced VC probably has a strategy for how they'll navigate it.
It is amazing how impactful the tuning of an interest rate by a central bank, a single float, is.
But not all that amazing when you remember that said tuning always happens in reaction to what is already happening. If money were free again today, it is much more likely that people would funnel it into backing products and services riding the inflationary wave, not go back to tech startups. That's explicitly why the central banks increased rates in the first place, after all – to slow down that behaviour. It is just one of an infinite number of variables, not some magical variable that stands alone. Tech's day in the sun was over either way. People were already moving on.
> Over 40% of the latest YC batch are AI/ML startups
> April 6, 2023
But maybe there is even a good idea there. LLMs have given AI a bad name, but it's a very generic word that could describe a company doing almost anything.
That has always seemed like a race to the bottom to me and it’s not a sustainable model for the economy.
Post-Covid, and given that the best engineers now command remote availability, and that debt is no longer approximately free, the future of the urban tech hub is in question.
All of this adds up to an asset class that has more risk than expected with less return than expected. VCs may have thrived in a world of easy capital and inflated valuations, but the “reality” is more apparent now. What founders need is an alternative source and model of capital entirely. And regulation to rein in megacorps so competition can thrive freely.
Sometimes you're lucky, most times you are not (as it relates to highly speculative investments of this kind).
I would say compared to just these examples, the private sector is doing better.
I'm not going to argue subjective opinion, but simply point out that investors seeking venture exposure should familiarize themselves with the accredited investor test Matt Levine of Bloomberg's Money Stuff suggests:
https://www.bloomberg.com/opinion/articles/2024-10-22/the-so... | https://archive.today/dytZs
> I have proposed my own solution, which I call the “Certificate of Dumb Investment.” The idea is that anyone can go to the SEC and ask for the certificate, which says:
> I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.
> And then the SEC will slap you in the face and say “really?” and if you say “yes really” then they give you the certificate and you can buy whatever private investment you want.
Who am I to get in the way of unsophisticated money doing unsophisticated things? That's not government waste, that's freedom. If you think you can do better, and prefer venture over a DraftKings account, 0DTE options, or a lottery ticket, go for it. That mental model is sophisticated money opportunity.
Tangential: https://longbets.org/362/
They might, but, if you are going to let the private sector do better, doesn't that also come with the implication that that the government will step down? We could, for example, have hundreds of businesses selling Windows, Office, etc., fixing the Microsoft problem spoken of earlier, but we can't do that right now because the government doesn't allow it. Try starting a business selling Windows and see how long before the full force of the law is bearing down on you. That certainly isn't efficient.
I've seen some VC funded orgs enter into the space where I have some visibility. The pattern of quickly eat up customers (or ... claiming to), and then fail. It always seems like leadership blowing through cash on a sort of "ignorant leadership learns about how the industry works" adventure. All while building up such a hugely resource intensive org with what is now a larger than needed / complex and unproven team ...
VC successes always seem to be in "new" spaces where their inefficiency is not noticeable, but also you've no idea the lay of the land in that new space / if someone can walk in with less money and oust you, or if it is profitable at all.
I think that era is over for companies. Budgets for all the tech giants are getting scrutinized and you can't just put together some tiger-team-of-teams to snuff out some startup.
Crypto wallets like Phantom providing swapping services are still making money.
So when HN was declaring it dead, that was the time to start buying.
Is it possible that these investments are crowding out seed and A rounds for early stage companies on the order of single to double digit millions?
Of course things were going to return to normal. Even if some people in tech had to be drug back kicking and screaming.
I would expect a lot of volatility, generally.
The chart was pretty telling, but it's not like this is unprecedented...
The data shows overall VC investment vs profit by year, but not all startups return value in the same year they’re funded.
Could it just be that after 2020 VC investments shifted towards startups with longer profit horizons? Could that explain why the author thinks VCs are “bleeding” cash?
Foreign direct investment into the area is now hitting a major anti-capital-flight problem. So from VC point of view, there's no growth possible until it corrects.
Entire diasporas up and left the area, probably in the area of 500,000-750,000 people. Severely impacting the bay area's viability going forward. Quite identical to white flight from detroit.
San fran specifically is quite unlikely to ever recover from this. They'd have to 180 on so much that it's impossible politically.
I do expect it'll be probably around late 2026 when VC bleed enough to exit the bay area. Or at least greatly reduce in size.
The very people who left were the people needed to fix it. The city of detroit experienced this. Racist policies by coleman young was the reason to leave detroit, different are the causes for the bay area. But the consequences are much the same. History just repeating.
It's interesting how willful blindness to the consequences of policies and refusal to undo mistakes have major human and social consequences.
Exactly. Grouping SF with Detroit is utterly ridiculous.
Today, I wouldnt buy either with someone else's money.
In the detroit area, I bought my old place for $30,000. Did my own home renos. sold $190,000 a few years later. In the same era when detroit was selling 4 bed 2 baths, with no neighbours for $5000...
Obviously i didnt buy any of those money pits. I went for the mansion.
>Exactly. Grouping SF with Detroit is utterly ridiculous.
I'm not sure how 'exactly' was a response here.
The automotive and manufacturing industry in detroit made real estate ridiculously expensive in the 1940s and 50s.
Detroit immediately before it's collapse had ridiculous housing prices exactly the same as San Fran. With much the same problems as the bay area. Much worse than the bay area average.
Detroit had homeless ghettos of mostly unemployable southerners; while rich business owners left the city en masse.
What do you think just happened to san fran? Got any homeless ghettos in san fran?
If that's what you want to call not building a profitable business, ok, you do you.
It's fine to fail. The clock was always limited on the strategy of failing at a large enough scale you can still cash out before the other shoe drops.
https://i.giphy.com/media/v1.Y2lkPTc5MGI3NjExZ2pmN296bjRqM28...
In the telecom sector I've seen so-called "CTO" of startup companies that have less hands on experience with network engineering and building internet things than a junior/mid-level NOC staffer. How did they get in these positions? Well crafted business plan documents and pitch decks.
Can you imagine that the people who spent all of the VC money on the Juicero put any serious research or due diligence into the entire concept?
There's an entire cadre of people out there who are so far removed from the concept of the impostor syndrome that they'll go blithely full speed ahead into a brick wall. Just being cocky and confident and having a good pitch has apparently got them a ton of money to mess about with.
This isn't just in tech. It's just a condition of human nature. I've seen it in every single industry I've worked in. To the point that I now distrust any claims of expertise in anything. So many people have just recreated something they've seen on YouTube and claim it is something new especially to the Olds because it's not like they've seen the original from YouTube. Or something similar to that concept even well before YouTube.
The AvE tear down video is among my favorite ever.
I think part of problem is that they believed there is any sizable class of people paying those premiums.
You can say energy generation companies are "getting rich" off Bitcoin but that ignores the fact that a lot of Bitcoin hashing is done using surplus or very low cost electricity.
You could try a straw man and say "early investors" are making bank but most of us have sold and traded along the way, only the already wealthy could hold from the early 2000s until today.
I can't really makes heads or tails of your comment, how do you think Bitcoin works?
One reason why they don't do IPO is that it would reveal their true value better and collapse valuation.
That money is so dumb.
More money + equal amount of smart investments -> ROI decline.
- The pool of companies seeking VC funding has exploded as the playbook became democratized
- The pool of VC funds has exploded as the playbook became democratized
- There is still a thin layer of interesting companies that are deserving of VC investment as there was in 2021, 2016, 2011, back and back, but this is the actual constraint and hasn't grown to keep pace
This all strikes me as simple and cyclical.
To combine this with another comment in this thread - there is an abundance of funds from dumb money sources as sovereign wealth funds and others started investing in VC.
Before, they could get away with not making money for decades. That grift does not work anymore.
The same is happening with AI and there is going to be hundreds of losers with the data brokers and the AI providers with hosted foundational AI models with Big Tech being the winners.